Silang Transport Service and Development Cooperative

February 1, 2008 BIR RULING [ECCP-022-08] COOP; RR 20-2001 Silang Transport Service and Development Cooperative 222 J.P. Rizal St., Silang, Cavite Attention: Mr. Sulpicio I. Arellano Chairman Gentlemen : This refers to your letter dated August 12, 2005 requesting, in effect, for tax exemption pursuant to the provisions of R.A. No. 6938, otherwise known as the "Cooperative Code of the Philippines". It is represented that Silang Transport Service and Development Cooperative (STSDC for brevity) is an existing cooperative duly registered with the Cooperative Development Authority under Certificate of Registration No. QC-1364 dated April 3, 1992; that STSDC was formed primarily to provide transportation services to the commuting public and to encourage thrift and savings mobilization among members for capital formation; that STSDC's other objectives are those set forth in its Articles of Cooperation and By-Laws; that STSDC is transacting business with members only; and that you have submitted to this Office in support of your letter request the following documents, viz. : (1) Articles of Cooperation and By-Laws; (2) Certificate of Registration with CDA; (3) Certification under oath that STSDC is transacting business with members only; (4) Latest Financial Statement; (5) Certificate of Good Standing and (6) other pertinent documents. Based on the foregoing, STSDC is exempt from the ordinary income tax on its transactions with its members effective April 3, 1992, its date of registration with the Cooperative Development Authority, pursuant to Article 61 of Republic Act No. 6938. Moreover, under Section 109, paragraph (M) of the Tax Code of 1997, as amended by R.A. No. 9337, STSDC, being duly registered with the CDA and dealing with members only, is exempt from VAT on its gross receipts from its lending activities. STSDC is also exempt from the 3% gross receipts tax under Section 116 of the same Code. Moreover, STSDC is also exempt from the annual registration fee of P500.00 imposed under Section 236 (B) of the 1997 Tax Code, as amended. However, it is not exempt from registration. Further, STSDC is liable to pay the 12% VAT billed to it on its purchases of goods and services because said tax is an indirect tax which can be passed on or shifted as part of the goods sold/services rendered. In case STSDC will distribute interest on capital, such interest shall be taxable to the recipient member and shall be declared in his/its income tax return. Furthermore, its interest income from currency bank deposits, yields from deposit substitutes, trust funds and similar arrangements and royalties derived from sources within the Philippines and the interest income it derives from a depository bank under the expanded foreign currency deposit system shall be subject to the 20% and 7.5% final tax, respectively, imposed under Section 27 (D) (1) of the Tax Code of 1997. It shall also be taxed on capital gains realized on sales or exchanges of properties. IDESTH It is emphasized, however, that the exemption of STSDC does not extend to its individual members. Moreover, STSDC shall be constituted as a withholding agent if it acts as an employer and its employees receive compensation income subject to withholding tax provided for in Section 57 of the Tax Code of 1997. Furthermore, said members shall also be taxed on prizes, winnings and capital gains realized on sales or exchanges of properties. Finally, STSDC is required to file on or before the 15th day of the fourth month following the close of its accounting period a Profit and Loss Statement Balance Sheet with the Annual Information Return under oath, stating its gross income and expenses incurred during the year and a certificate showing that there has not been any change in the By-Laws, Articles of Cooperation, manner of activities, as well as sources and disposition of income. A copy of the letter of exemption must be attached to the Annual Information Return which it will file on or before said date. It is of course understood that the books of accounts and other pertinent records of STSDC shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purpose of ascertaining whether it has been complying with the conditions under which it has been granted tax exemption or tax incentives pursuant to Section 235 of the Tax Code of 1997. SITCcE This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service